Plaintiff
Colonial Funding Network, Inc. (“Colonial
Funding”) sued Defendants McNider Marine, LLC and Bruce
McNider (the “McNider Parties”) for overdue
payments on a financing transaction. The McNider Parties
settled with Plaintiff, but joined fourteen counterclaim
defendants, each a financial institution with whom the
McNider Parties had entered into similar transactions. The
McNider Parties have resolved their claims against all but
six of the counterclaim defendants.

Movants
are five of the remaining counterclaim defendants -- Complete
Business Solutions Group, Inc. (“CBSG”), Retail
Capital, LLC (“Retail Capital”), Richmond Capital
Solutions, LLC (“Richmond”), Yellowstone Capital,
LLC (“Yellowstone”) and IBIS Capital Group, LLC
(“IBIS”) (these five collectively, the
“Counterclaim Defendants”). They move to dismiss
the “Third Amended Complaint” -- which is
actually the McNider Parties' third amended answer and
counterclaims (the “Counterclaims”). Their
motions are granted. The Counterclaims against Counterclaim
Defendants are severed from the main action, which is closed,
and are dismissed without prejudice.[1] For the same reasons, the
Counterclaims against the sixth counterclaim defendant, Flat
Fee Merchant Services, LLC (“Flat Fee”), which
has not appeared in this action, are also severed and
dismissed.

The
McNider Parties move to amend the caption to name themselves
as “Plaintiffs” and the remaining counterclaim
defendants as “Defendants.” The McNider
Parties' motion is denied as moot.

I.
BACKGROUND

The
following alleged facts are taken from the Counterclaims and
are accepted as true for purposes of this motion. The facts
are construed, and all reasonable inferences are drawn, in
favor of Plaintiff as the non-moving party. See Trs. of
Upstate N.Y. Eng'rs Pension Fund v. Ivy Asset Mgmt.,
843 F.3d 561, 566 (2d Cir. 2016), cert. denied, 137
S.Ct. 2279 (2017).

A.
Factual History

McNider
Marine, LLC is an Alabama-based marina that sells and repairs
boats. McNider and his wife, Melissa McNider, own McNider
Marine, LLC.

The
Counterclaims allege that the McNider Parties “entered
into a continuous series of criminally usurious loans with
the [Counterclaim] Defendants and other[s] . . . beginning
with Retail Capital on May 22, 2014.” The Counterclaims
further allege that, “as a direct and proximate result
of the financial strain resulting from this initial loan with
Retail Capital, ” the McNider Parties entered into a
series of similar agreements to sell a percentage of future
receivables -- “factoring agreements” -- with
Counterclaim Defendants and others. In total, the McNider
Parties entered into no fewer than twenty-one such agreements
with at least twelve different lenders over a more than
two-year period. Relevant here, the agreements include three
agreements with Retail Capital on May 22, 2014, September 23,
2014, and December 3, 2014; one agreement with Ibis on
October 6, 2016; two agreements with Yellowstone on July 21,
2016, and October 19, 2016; and one agreement with
Richmond/CBSG on November 17, 2016.

The
Counterclaims do not describe the circumstances that
precipitated each agreement or that surrounded any alleged
event of default. However, they allege that the McNider
Parties were the victims of an unlawful “pyramid
scheme, ” stating that Counterclaim Defendants
“lured” them into these transactions by
“sharing customer information” and
“actively seeking other [lenders] to place new
loans.”[2] The Counterclaims allege broadly that each
counterclaim defendant falsely “held [itself] out as
providing expert financial consulting services, ”
representing that “McNider's business would be able
to afford and comply with the terms and conditions of each
transaction, ” when in fact it could not. The
Counterclaims further allege that Counterclaim Defendants
made “false promises” that would “help
McNider's business grow, as represented and
promised” when, to the contrary, they knew that
“the merchant is pushed toward an unsustainable level
of indebtedness.” The alleged scheme was furthered with
the purported factoring agreements that falsely represented
the fair market value of receivables and other terms. The
result was alleged “sham” sales of receivables
that in fact were usurious loans, causing the McNider Parties
to suffer “indivisible injuries, ” including loss
of goodwill and profits, devaluation of McNider Marine, LLC,
deterioration of the McNider Parties' credit profiles
and, as to McNider, mental anguish and distress.

In
addition to negligence and/or negligent misrepresentation,
the Counterclaims allege violations of Alabama law against
Counterclaim Defendants; breach of contract against Retail
Capital and Yellowstone; and violations of New York law
against Yellowstone.

B.
Procedural History

Colonial
Funding initiated this action against the McNider Parties on
or around March 20, 2017, in the Supreme Court of the State
of New York. The Complaint alleged various breach of contract
claims arising out of an agreement whereby Plaintiff
allegedly purchased $351, 000.00 of McNider Marine's
future receivables for $260, 000.00. The McNider Parties
filed a Notice of Removal on April 12, 2017.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April 17, 2017, the McNider Parties filed the Answer and
Counterclaims, asserting claims against fourteen counterclaim
defendants, including the six remaining counterclaim
defendants. The McNider Parties filed the Amended Answer and
Counterclaims on April 26, 2017, the Second Amended Answer
and Counterclaims on May 22, 2017, and the operative pleading
at issue here, styled as the &ldquo;Third Amended Complaint,
&rdquo; on June 27, 2017. On the same day that the McNider
Parties filed the purported &ldquo;Third Amended
Complaint&rdquo; -- i.e., their third amended answer
and counterclaims -- the parties filed a Stipulation of
Discontinuance, resolving the underlying dispute between
Plaintiff and the McNider Parties. The ...

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